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A finance perspective of procurement within pharmaceutical giant, AstraZeneca

An interview conducted with David Powell (DP), Senior Director of Global Finance Processes, AstraZeneca discusses how Procurement has gone from being the poor cousin, to a partner at the heart of business decision making within AstraZeneca.

CG: Hi David, Thank you for joining us today. David you are the Senior Director of Global Finance Processes for AstraZeneca, what does this entail?

DP: My role is to ensure that AstraZeneca has the optimal transactional finance processes. I run a team of global process owners, which is a relatively novel idea in the AstraZeneca setting, whose role is to ensure that we have the best processes in the Pharmaceutical industry.

CG: 2010 was a turbulent year for everyone in the pharmaceutical industry, not only were poor economic conditions forcing everyone to batten the hatches, but new stringent regulatory hurdles and looming patent expiration dates caused AstraZeneca to really overhaul its R&D operations. With a lower than expected GDP growth announced this week, what are your 3 objectives and areas of focus for the next 12 months?

DP: AstraZeneca’s CEO, David Brendan has put in place clear strategies with the Senior Executive Team and these have remained the constant through the current economic situation. The key pillars of our strategy are our pipeline, our existing products and the shape of our business.

AstraZeneca along with other pharmaceutical companies needs to improve its productivity in R&D and generally. Although regulatory hurdles have increased, AstraZeneca has to respond by producing more innovative medicines which meet patient’s needs and fulfil those stringent regulations.

AstraZeneca needs to ensure that the existing medicines it produces are available to as many users/patients that can benefit as possible and generate the cash we need for investment in new products

We are also overhauling the way AstraZeneca works, money wasted on poor processes could be instead spent on new medicines or be returned to our shareholders. For too long now pharmaceutical companies have been a bit of a ‘back water’ when it comes to efficiency and effectiveness and we need to catch-up.

Overhauling and modernising business practices ensures that the company focuses on maximising the amount of resources that we can put on our core reason for being, which is to invent and bring to the market new and innovative medicines.

CG: How are these objectives and plans communicated to, and understood by, everyone in the company?

DP: AstraZeneca’s strategies have been in place for a number of years and form the back bone of our drive to be the best pharmaceutical company in the world. These strategies are the heart beat of everyone’s objectives and are incorporated into our company’s scorecard, performance management and the plans that drive people day to day. The communication of these strategies has been consistent and extensive to ensure that employees are fully aligned to meet these goals.

CG: We have talked about AstraZeneca’s objectives in light of a rather meek economic outlook – touching on the need for better processes to minimise wastage and improve cost efficiencies. How high is procurement on AstraZeneca’s or your own personal agenda this year – given its ability to directly impact wastage and cost efficiency?

DP: Procurement is high on everyone’s agenda here at AstraZeneca. Over the last couple of years we have transformed our approach to procurement. Previously under the management of John Taylor and then Jon Kirby, who was brought in from Barclays Bank [both are former CPOs] and now Ashley Readshaw, our newly appointed CPO, AstraZeneca has focused on transforming the approach to procurement, introducing world class procurement practices (such as category management). All this allows us to develop and execute category plans making most of our power in the market place to ensure we are paying a fair and a consistent price for the products and services we use. It is fair to say that a significant amount of savings have been made from these procurement activities. It is these savings that are helping to transform the way in which we work.

CG: What does procurement mean to you?

DP: Procurement allows us to ensure that we are correctly sourcing the right quality or product service at the best price. BPO for example - AstraZeneca have undertaken a significant increase in outsourcing and it continues to be an important topic for us. Outsourcing has transformed the way in which our supply chain works, our IS activities and more recently finance and hr. Procurement has been at the heart of the fundamental shift and philosophy in improving processes. It is more than simply getting a cheaper price for the product or service we require.

CG: Does procurement in AstraZeneca focus largely on the external supply market or do you also focus on the relationship with internal stakeholders and challenge the way in which they work and think?

DP: Both. Procurement is a function that is fully locked in with business management. I value the support, advice and challenges that we receive from procurement experts in shaping what we do in finance. Procurement experts are a fundamental part of the way in which we do business.

Step back 10-15 years and you can see there has been a very stark change in our company. Procurement has gone from being the poor cousin, to a partner at the heart of our business decision making.

CG: Who is ultimately accountable for your procurement processes?

DP: Ashley Readshaw is the recently announced CPO. Ashley reports to David Smith who is Executive Head of Operations. He covers the supply chain from other operational aspects of AstraZeneca.

CG: In terms of expectations from a finance and a process perspective, what are the expectations of procurement?

DP: To provide the support, challenge and expertise to enable us to source the right quality of products and services. In turn helping us to drive our transformation agenda, changing the way in which we do business, where third parties act in partnership with AZ to help us achieve our goals. Procurement is a critical player in driving this behaviour.

CG: To be clear, are you currently doing this or is this something that your company are looking to put in place?

DP: We are currently experiencing this; however we are not at the end of our journey. Procurement have initiated setting up a centre of excellence for good procurement practices in the outsourcing arena, which will help us drive the right sort of partnership and contracting behaviours with third parties, for example.

CG: Talking about Procurement at its entirety within AstraZeneca, do you split apart the drug discovery procurement vs. operational procurement?

DP: Our Procurement experts support all of the different parts of AstraZeneca, and are a valued support services. Underpinning the service are standard methodologies and increasingly systems and processes that enable those business partners to deliver value.

CG: Can you measure through KPI’s how well processes are doing or not doing?

DP: In respect of the finance processes, we provide a service for the business in looking after core finance process activities. We have an extensive suite of KPI’s for our service levels and publish those to our organisation. For example, we publish metrics on how quickly we pay suppliers and the efficiency and effectiveness of that part of the process. We work hand in glove with the procurement organisation to improve service e.g. PO penetration. We are also closely aligned on procurement systems strategy, ensuring we have good information flow around the Source to Pay cycle.

CG: When you look at the business operation and consider whether to develop efficiency or outsource, how do you achieve this?

DP: Outsourcing generates efficiency savings and improves productivity. For Finance, although the financial gains of outsourcing are important, we are most interested in the potential to generate better business outcomes e.g. reduced working capital through improving our processes.

As well as better business outcomes, we can re-focus finance managers time. AstraZeneca have had some great people working on developing processes for purchase to pay or reporting over the years, but it is not our primary expertise and is not what we want to spend our time on. By outsourcing we are buying real expertise, our partner does this for a living and has more expertise on process management than we do.

CG: Have you experienced any negatives form outsourcing?

DP: There have been some lessons learnt which is of no surprise. However, procurement has played a very big part in helping us learn from the mistakes and resulted in ensuring practices are established to ensure they aren’t repeated. AstraZeneca is determined to make outsourcing work. We are very positive about what we will get out of our outsourcing agenda and confident that we will meet our strategic goals.

CG: If you had a magic wand that you could wave to fix one process in AstraZeneca, what would it be?

DP: Record to Report - which takes transactions from the general ledger through to the group consolidation process. There is a lot of swan paddling that needs to be done to produce the group reports and this could be and should be so much simpler and quicker.

CG: Thank you for your time David

CG: Hi David, Thank you for joining us today. David you are the Senior Director of Global Finance Processes for AstraZeneca, what does this entail?

DP: My role is to ensure that AstraZeneca has the optimal transactional finance processes. I run a team of global process owners, which is a relatively novel idea in the AstraZeneca setting, whose role is to ensure that we have the best processes in the Pharmaceutical industry.

CG: 2010 was a turbulent year for everyone in the pharmaceutical industry, not only were poor economic conditions forcing everyone to batten the hatches, but new stringent regulatory hurdles and looming patent expiration dates caused AstraZeneca to really overhaul its R&D operations. With a lower than expected GDP growth announced this week, what are your 3 objectives and areas of focus for the next 12 months?

DP: AstraZeneca’s CEO, David Brendan has put in place clear strategies with the Senior Executive Team and these have remained the constant through the current economic situation. The key pillars of our strategy are our pipeline, our existing products and the shape of our business.

AstraZeneca along with other pharmaceutical companies needs to improve its productivity in R&D and generally. Although regulatory hurdles have increased, AstraZeneca has to respond by producing more innovative medicines which meet patient’s needs and fulfil those stringent regulations.

AstraZeneca needs to ensure that the existing medicines it produces are available to as many users/patients that can benefit as possible and generate the cash we need for investment in new products

We are also overhauling the way AstraZeneca works, money wasted on poor processes could be instead spent on new medicines or be returned to our shareholders. For too long now pharmaceutical companies have been a bit of a ‘back water’ when it comes to efficiency and effectiveness and we need to catch-up.

Overhauling and modernising business practices ensures that the company focuses on maximising the amount of resources that we can put on our core reason for being, which is to invent and bring to the market new and innovative medicines.

CG: How are these objectives and plans communicated to, and understood by, everyone in the company?

DP: AstraZeneca’s strategies have been in place for a number of years and form the back bone of our drive to be the best pharmaceutical company in the world. These strategies are the heart beat of everyone’s objectives and are incorporated into our company’s scorecard, performance management and the plans that drive people day to day. The communication of these strategies has been consistent and extensive to ensure that employees are fully aligned to meet these goals.

CG: We have talked about AstraZeneca’s objectives in light of a rather meek economic outlook – touching on the need for better processes to minimise wastage and improve cost efficiencies. How high is procurement on AstraZeneca’s or your own personal agenda this year – given its ability to directly impact wastage and cost efficiency?

DP: Procurement is high on everyone’s agenda here at AstraZeneca. Over the last couple of years we have transformed our approach to procurement. Previously under the management of John Taylor and then Jon Kirby, who was brought in from Barclays Bank [both are former CPOs] and now Ashley Readshaw, our newly appointed CPO, AstraZeneca has focused on transforming the approach to procurement, introducing world class procurement practices (such as category management). All this allows us to develop and execute category plans making most of our power in the market place to ensure we are paying a fair and a consistent price for the products and services we use. It is fair to say that a significant amount of savings have been made from these procurement activities. It is these savings that are helping to transform the way in which we work.

CG: What does procurement mean to you?

DP: Procurement allows us to ensure that we are correctly sourcing the right quality or product service at the best price. BPO for example - AstraZeneca have undertaken a significant increase in outsourcing and it continues to be an important topic for us. Outsourcing has transformed the way in which our supply chain works, our IS activities and more recently finance and hr. Procurement has been at the heart of the fundamental shift and philosophy in improving processes. It is more than simply getting a cheaper price for the product or service we require.

CG: Does procurement in AstraZeneca focus largely on the external supply market or do you also focus on the relationship with internal stakeholders and challenge the way in which they work and think?

DP: Both. Procurement is a function that is fully locked in with business management. I value the support, advice and challenges that we receive from procurement experts in shaping what we do in finance. Procurement experts are a fundamental part of the way in which we do business.

Step back 10-15 years and you can see there has been a very stark change in our company. Procurement has gone from being the poor cousin, to a partner at the heart of our business decision making.

CG: Who is ultimately accountable for your procurement processes?

DP: Ashley Readshaw is the recently announced CPO. Ashley reports to David Smith who is Executive Head of Operations. He covers the supply chain from other operational aspects of AstraZeneca.

CG: In terms of expectations from a finance and a process perspective, what are the expectations of procurement?

DP: To provide the support, challenge and expertise to enable us to source the right quality of products and services. In turn helping us to drive our transformation agenda, changing the way in which we do business, where third parties act in partnership with AZ to help us achieve our goals. Procurement is a critical player in driving this behaviour.

CG: To be clear, are you currently doing this or is this something that your company are looking to put in place?

DP: We are currently experiencing this; however we are not at the end of our journey. Procurement have initiated setting up a centre of excellence for good procurement practices in the outsourcing arena, which will help us drive the right sort of partnership and contracting behaviours with third parties, for example.

CG: Talking about Procurement at its entirety within AstraZeneca, do you split apart the drug discovery procurement vs. operational procurement?

DP: Our Procurement experts support all of the different parts of AstraZeneca, and are a valued support services. Underpinning the service are standard methodologies and increasingly systems and processes that enable those business partners to deliver value.

CG: Can you measure through KPI’s how well processes are doing or not doing?

DP: In respect of the finance processes, we provide a service for the business in looking after core finance process activities. We have an extensive suite of KPI’s for our service levels and publish those to our organisation. For example, we publish metrics on how quickly we pay suppliers and the efficiency and effectiveness of that part of the process. We work hand in glove with the procurement organisation to improve service e.g. PO penetration. We are also closely aligned on procurement systems strategy, ensuring we have good information flow around the Source to Pay cycle.

CG: When you look at the business operation and consider whether to develop efficiency or outsource, how do you achieve this?

DP: Outsourcing generates efficiency savings and improves productivity. For Finance, although the financial gains of outsourcing are important, we are most interested in the potential to generate better business outcomes e.g. reduced working capital through improving our processes.

As well as better business outcomes, we can re-focus finance managers time. AstraZeneca have had some great people working on developing processes for purchase to pay or reporting over the years, but it is not our primary expertise and is not what we want to spend our time on. By outsourcing we are buying real expertise, our partner does this for a living and has more expertise on process management than we do.

CG: Have you experienced any negatives form outsourcing?

DP: There have been some lessons learnt which is of no surprise. However, procurement has played a very big part in helping us learn from the mistakes and resulted in ensuring practices are established to ensure they aren’t repeated. AstraZeneca is determined to make outsourcing work. We are very positive about what we will get out of our outsourcing agenda and confident that we will meet our strategic goals.

CG: If you had a magic wand that you could wave to fix one process in AstraZeneca, what would it be?

DP: Record to Report - which takes transactions from the general ledger through to the group consolidation process. There is a lot of swan paddling that needs to be done to produce the group reports and this could be and should be so much simpler and quicker.